Daily Archives: July 11, 2008

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“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”

All cartoons are posted with the artists’ express permission to TPZoo.
Matt Davies, NY Journal News

..Treasury Secretary Henry Paulson sought for the second-straight day to calm investors panicked about out the financial state of Fannie Mae and Freddie Mac, saying the agency aims to keep the mortgage finance companies “in their current form” without a government takeover.

The financial health of the companies is of critical concern to Washington policymakers because of the crucial role Fannie and Freddie play in the housing market.

The pair hold or guarantee more than $5 trillion worth of mortgages. That’s roughly half of the $9.5 trillion debt of the United States. The fear is that a failure of one or both would wreak havoc on the nation’s financial system and the broader economy…

Does this spell trouble disaster just for the housing market? Or for the entire banking system all together?

Under a 1992 law, if either company fell into financial trouble, the government could take over their operations by placing it in a conservatorship. That process could be used to keep operations going at Fannie and Freddie, but shareholders would likely see their investments erased, and the companies’ ability to support the mortgage market could be reduced.

Is “conservatorship” the same as government bailout? Again, what does that mean? What would that mean to homehowners with mortgages across the entire country? Does that mean home values would become worthless (along with the dollar)? Or something much worse?

The New York Times reported Friday the government was considering taking over the operations of one or both of the companies, adding to fears that have mounted this week. Representatives from Fannie and Freddie were not immediately available for comment Friday morning.

Fannie and Freddie play a crucial role in providing funding for home loans by buying up mortgages and packaging them as investments. If they are unable to operate, the implications could be dire.

“Without them, our economy would collapse,” Piper Jaffray analyst Robert P. Napoli said in a note to clients. Napoli lowered his target on Freddie to $9 per share from $28, and on Fannie to $15 per share from $30.